State Farm Mutual Automobile Insurance Company v. Kandy Pedisic, 2009 ONFSCDRS 70

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2009 ONFSCDRS 70

Appeal P09-00013

Appellant

and

Respondent

BEFORE:

Delegate Lawrence Blackman

Mr. Nawaz A. Tahir for State Farm Mutual Automobile Insurance Company Mr. Robert W. Vitols for Ms. Kandy Pedisic

By written submissions received by May 25, 2009

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

The Appellant’s request for a stay of the accrual of interest pursuant to section 46 of the Schedule on $57,078.50 for massage therapy medical benefits and of the Arbitrator’s January 23, 2009 award of interest is denied.
The legal expenses of this preliminary issue appeal decision are deferred to the final disposition of this appeal, subject to any further or other order of an appellate adjudicator.

June 4, 2009

Lawrence Blackman Director’s Delegate

Date

I. NATURE OF THE PRELIMINARY ISSUE AND ANALYSIS

The Respondent, Ms. Kandy Pedisic, was injured in motor vehicle accidents on March 6, 1997 and February 5, 2003, and applied to her first-party automobile insurer, State Farm Mutual Automobile Insurance Company (“the Appellant”), for statutory automobile accident benefits payable under the Schedule.¹

The parties came before Arbitrator Feldman (the “Arbitrator”) for an eight-day arbitration hearing in January and November 2008 for determination of issues in dispute. The Arbitrator, in his 35-page January 23, 2009 decision, found that the Respondent suffered from chronic neck, shoulder and back pain and awarded her $57,078.50 for message therapy up to and including January 20, 2008, with interest thereon pursuant to subsection 46(2) of the Schedule.

Citing Rule 65.6 of the Dispute Resolution Practice Code (Fourth Edition, Updated – October 2003) (the “Code”), the Appellant made subsequent submissions to the Arbitrator that there was ambiguity in the Arbitrator’s interest order in that the reasoning in Pafco Insurance Company Limited and Langdon, (FSCO P02-00017, July 17, 2003) should have been preferred over that of Coachman Insurance Company and Hejnowicz, (FSCO P05-00024, August 3, 2006). The Appellant argued that interest should commence only as of the January 23, 2009 decision date or, in the alternative, from January 20, 2006, the date initially set for the arbitration.

The Arbitrator’s March 26, 2009 letter rejected the Appellant’s submissions stating, in part:

… With respect to the issue of the Applicant’s entitlement to interest, it is too late now for State Farm to be raising that issue. My decision has been made and that is not a mere “clarification” of an “ambiguity” (pursuant to Rule 65.6 of the Dispute Resolution Practice Code). To the extent that paragraph 2 of the order needs clarification, I find that the Insurer must pay interest on all overdue payments from the time they became overdue in accordance with section 38 of the Schedule.

[emphasis in the original]

The Appellant’s April 24, 2009 Notice of Appeal argued that the Arbitrator erred in law in following Hejnowicz and failing to consider Langdon. For reasons set out in its Schedule “D,” the Appellant sought, amongst other relief, a stay of the arbitration order “relating to interest, to the extent that interest does not continue to accrue” from the date of the Notice of Appeal until an appeal decision was rendered or the matter settled. The Appellant submitted that the conflicting decisions regarding the payment of interest in the facts of this case was a unique circumstance and it would be unfair to allow compound interest to accrue during the appeal.

My May 4, 2009 letter asked that the Respondent respond in her Response to Appeal to the Appellant’s stay request. Exercising my discretion under Rule 56.5 of the Code, I indicated that I would decide the stay request on the basis of written submissions as the most expeditious and least expensive means of determining this preliminary issue. If required by either party, an extension could be provided for submissions.

The Respondent argued that it would be manifestly unjust for the Appellant to be relieved of its obligation to pay interest during the appeal while concurrently the Respondent remained obliged to pay the service provider all outstanding interest in accordance with the rate established by the Schedule. The Respondent further submitted that an appeal did not disentitle a claimant to interest and that Hejnowicz had made the law regarding interest abundantly clear.

Neither party requested additional time for written submissions.

I am not persuaded that the Appellant has met its onus in establishing that a stay should be granted either regarding the accrual of interest or enforcement of the Arbitrator’s order, for the reasons that follow. Accordingly, the Appellant’s request for a stay is denied. Refusal of this stay request is without prejudice to the Appellant, if it is successful on this appeal, seeking repayment.

Subsection 283(6) of the Insurance Act, R.S.O. 1990, c. I.8, provides that an appeal does not stay an arbitrator’s order unless decided otherwise. As stated by Delegate McMahon in Guardian Insurance Company of Canada and Armstrong, (FSCO P00-00037, July 20, 2000), a stay “is the exception rather than the rule.”

Delegate Richardson, in Canadian Home Assurance Company and Scavuzzo, (OIC P-000626, May 18, 1992), adopted the following criteria whether a stay should be granted:

the bona fides of the appeal;
the substance of the grounds for appeal; and,
the hardship to the respective parties if the stay is granted or refused.

Regarding the bona fides of this appeal, the Arbitrator’s March 26, 2009 letter stated that:

Counsel for the Insurer made no submissions whatsoever at the hearing with respect to the issue of interest. He did not request that I reserve my decision on the issue of interest. He did not request that I restrict my decision to the Applicant’s entitlement to the cost of the disputed treatment or ask that he be permitted, at some future time, to make submissions on this issue. The only issue upon which I reserved judgment was the issue of the expenses of the hearing.

Counsel for the Applicant assumed, as did I, that the Insurer did not raise this issue at the hearing because, subsequent to the filing of the Insurer’s Response, the law in this area was clarified by the Hejnowicz appeal decision, which is directly on point and is a decision by which I am bound. Counsel for the Applicant further submits that the Insurer is estopped by its conduct (i.e., entering into negotiations with respect to the applicable interest rate and failing to raise at any relevant time any dispute over the Applicant’s entitlement to interest prior to the release of my decision) from now raising as an issue the Applicant’s entitlement to interest.

The Applicant takes the position that if the Insurer wished to preserve its right to argue about the Applicant’s entitlement to interest, the time to say so was during the two week hearing that concluded on November 28, 2008. I agree. …

[emphasis added]

Rule 65.6 of the Code provides that an “adjudicator may at any time clarify a decision or order that contains a misstatement, ambiguity or other similar error.”

Rule 1.1 of the Code provides that the Rules are to be interpreted to produce the most just, quickest and least expensive resolution of the dispute. In this spirit, a major purpose of the pre-hearing process, as stated in Rule 33.1(a) of the Code, is for the parties to identify and obtain agreement as to the issues for arbitration. The purpose of Rule 65.6 is not to provide parties an additional opportunity to raise issues they omitted to address at the arbitration hearing. It is not an answer that a party became focused at an eight-day arbitration hearing on other issues and assumed that interest would be dealt with later.

A further principal purpose of the pre-hearing process is to prevent surprise to the opposing party. As noted by the Arbitrator in his March 26, 2009 letter, as a term of certain prior adjournments, interest was either suspended or reduced to 5% per annum for specific periods. The Appellant does not dispute that it failed to advise, prior to the release of the Arbitrator’s decision, that it was challenging the payment of interest accruing to that point.

The Appellant’s failure to raise the issue of interest, as determined in Langdon, prior to or during the arbitration hearing and the Appellant’s specific agreement to alternative rates of interest prior to the Arbitrator’s decision raise questions as to the bona fides of this appeal. It also leads to the next criterion in considering a stay, the substance of the grounds of the appeal.

Subsection 46(2) of the Schedule provides that:

(1) An amount payable in respect of a benefit is overdue if the insurer fails to pay the benefit within the time required under this Part.

(2) If payment of a benefit under this Regulation is overdue, the insurer shall pay interest on the overdue amount for each day the amount is overdue from the date the amount became overdue at the rate of 2 per cent per month compounded monthly. O. Reg. 403/96, s. 46

Clause 38(14)(b) of the Schedule provided that if a report from a Designated Assessment Centre (“DAC”) which the insurer required the insured person to attend did not state that, in the opinion of the person or persons who conducted the assessment, an expense was reasonable and necessary for the insured person’s treatment or rehabilitation, the insurer was not required to pay for the expense.

The Arbitrator found that the Appellant had refused to pay for massage therapy after June 26, 2002 based on a March 5, 2002 Medical/Rehabilitation DAC Report.

In Langdon, Delegate McMahon held that if an insurer referred a dispute over medical benefits to a DAC that delivered a negative report, but later a judge or an arbitrator found the treatment to be reasonable and necessary, the insurer would be responsible for payment of the treatment but would not be responsible for the payment of interest under subsection 46(2) of the Schedule prior to adjudication because the amount awarded was not overdue before that time.

In his reasoning, Delegate McMahon stated that:

… at 2% per month (either simple or compound), the interest payable pursuant to the SABS is not neutral. It does more than compensate the insured for the delay, or deprive the insurer of any benefit gained from the use of the money pending judgement. It represents a penalty that is imposed in the event of an overdue payment. [This consequence must be distinguished from the notion of punishment that is imbedded in a special award or punitive damages … It is imposed in the event a payment is overdue, and does not require an additional finding that the payment was unreasonably withheld.] This penalty component is the incentive designed to encourage the insurer to pay within the time-frames set out in the parts of the SABS that define the insurer's payment obligations. Imposing interest in the event of non-compliance encourages the insurer to meet its obligations. However, this incentive is negated if the interest is payable in any event.

The Ontario Court of Appeal, in Attavar v. Allstate Insurance Co. of Company (2003), 2003 CanLII 7430 (ON CA), 63 O.R. (3d) 199, had addressed interest under section 68 of the Bill 164 Schedule² in the context of a DAC assessment. Laskin J.A. (writing for Simmons and Gillese JJ.A.), stated that “the Schedule does not treat a payment in accordance with a REC/DAC recommendation as a binding interim order that stops the running of interest.” Laskin J.A. continued that:

Although the amount of interest provided for in s. 68 is above the bank rate, I, like several arbitrators, regard s. 68 as compensatory, not punitive. The provision is designed to compensate insureds for the time value of money and to encourage insurers to pay accident benefits promptly.

In considering Attavar, Delegate McMahon concluded in Langdon that the payment rules for medical and rehabilitation benefits required a different analysis.

However, in Hejnowicz, Delegate Makepeace held that:

In summary, I do not accept that the requirement to pay medical benefits depends on a positive DAC report or a favourable decision by a judge or an arbitrator. Despite the differences between weekly benefits and medical benefits, s. 38 imposes a requirement to pay within 30 days of receiving the invoice or application for benefits to which the claimant is entitled. This obligation is not displaced by a DAC referral or the commencement of dispute resolution proceedings.

Delegate Makepeace continued:

… the SABS requires the payment of interest on overdue benefits even if no dispute is ever brought under sections 279-284 of the Insurance Act. Arbitrators do not order "pre-judgement" or "post-judgement" interest; interest under the SABS is contractual.

Delegate Makepeace concluded:

In my view, nothing in s. 38 justifies a departure from the well-established principles governing SABS interest: it is mandatory, compensatory, and flows from a finding that benefits were payable and were not paid on receipt of the required application documents.

The Ontario Court of Appeal recently confirmed, in Sorokin v. Wawanesa Mutual Insurance Company, 2009 ONCA 152 that:

The clear policy intent of s. 46 of the SABS is compensatory as described in Attavar v. Allstate Insurance Co. of Company (2003), 63 O.R. (3d) at 199 (Ont. C.A.). Section 46(2) is a part of that compensatory scheme.

The discretion of an appellate adjudicator under subsection 283(6) of the Insurance Act is to stay the order of the arbitrator, in this case, enforcement of the Arbitrator’s order regarding payment of interest. I have no authority under subsection 283(6) to stay, as requested by the Appellant, the actual accrual of interest under section 46 of the Code.

As to the substance of the grounds for a stay of the Arbitrator’s order that interest be paid, Delegate Makepeace stated in Hejnowicz that the payment rules in the Schedule were ambiguous. Given the comments as to the nature of interest by the Court of Appeal (whose decisions are binding on me) in Attavar, confirmed most recently in Sorokin, it is unclear, at this point in this appeal proceeding, why the reasoning in Langdon is to be preferred over the reasoning in Hejnowicz, decisions of neither the Director nor his or her Delegate being binding on me.

Regarding the criterion of prejudice, the Appellant submits only that it would be unfair to allow compound interest to accrue during the appeal process. Rates of interest statutorily set by the Schedule, by itself, is not a prejudice. This is especially so when the Court of Appeal confirms that payment of interest at two per cent per month, compounded monthly, is compensatory.

The Arbitrator noted that the sum of $57,078.50 ordered paid covered treatment received from July 2002 to January 2008. To stay the Arbitrator’s order following an eight-day arbitration hearing and further delay payment of monies that stretch back over the course of almost seven years, especially in light of the aforementioned criteria would, in my view, be prejudicial.

I note that regarding the payment of interest in light of the parties’ pre-hearing agreements, the Arbitrator’s March 26, 2009 letter stated that:

The parties did not advise me until now that they had entered into agreements with respect to the applicable rate of interest to be applied to overdue payments. Where there is an agreement between counsel, the parties are bound by that agreement and it should be unnecessary to incorporate such agreements into an order.

II. EXPENSES

The legal expenses of this preliminary issue appeal decision are deferred to the final disposition of this appeal, subject to any further or other order of an appellate adjudicator.

June 4, 2009

Lawrence Blackman Director’s Delegate

Date

Footnotes

The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
The Statutory Accident Benefits Schedule — Accidents after December 31, 1993 and before November 1, 1996, Ontario Regulation 776/93.